That makes sense, and its reflecting in NPA increase of manappuram for last 5 years. However gross NPA is still 1% of total assets which is noway near alarming levels and doesnt alone justify such low P/B valuations. There is more to such low valuations than risky assets, and may be regulatory uncertainty is keeping things low. For eg: Gold monetization scheme will hit their business, so certainly headwinds facing gold finance business.

Specifically this - We are getting into the realm of housing finance and are looking at a niche customer base. Our gold customers could be the potential customers here as well. We have at any given time Rs 60 lakhs of gold loans. Our emphasis is on affordable housing. We are not here to compete with the SBIs or any similar entities in that space.

This new area for them would have much longer tenure loans compared to the existing ones they make with lower spreads compared to their core business

There are synergies between what they do and this new field in terms of negligible customer acquisition cost but this is a very different ball game.

Can you think of specific reasons why management is thinking this way because till now they have been very smart about capital allocation. we may argue about when this new business will start/frustify/scale but I am more interested in why would management even contemplate this move in the first place

Rest assured, if they were getting interested in another area where the loan characteristics were similar to the existing loans they made, I would not be asking this question

Muthoot has set up a new subsidiary for this. Muthoot has infused 50 crores as equity capital into this subsidiary. This is a small commitment so far (and looks like a long-term plan)…

I will be curious to know how Muthoot goes about this.
Will these housing loans be given against gold as collateral
What will be the average ticket size
What will be the average tenure of these loans (3 years vs. 10 years vs 15 years)
Will they pilot this in some states first? which states

No clarity on any of these so far.

Nevertheless, I think the major focus of the management would be their Sri Lankan gold finance subsidiary, and on expanding gold loans into Eastern and Western parts of India (where they have lesser presence)…

George Alexander Muthoot, MD & Oommen K. Mammen, CFO addr the call:Highlights by Capital Mkt
The loan book of the company increased at steady pace of 14% to Rs 24833 crore at end September 2015. The company has added Rs 500 crore to the loan book in Q2FY2016, despite challenging environment. The company expects loan growth of 10-15% for FY2016.The number of gold loan accounts has further increased to 68 lakh at end September 2015 from 65 lakh at end June 2015.The company has been in the process of transforming its business, sales and marketing culture over last one year.The company has completed issuance of Rs 500 crore of NCDs in October 2015. The interest rate on fresh issuance of NCDs is consistently declining.
The gold bonds book of the bank company, which carries the higher interest cost of above 11%, is running down every month.As per the company, it would pass on the benefits of declining cost of funds to the customer’s subject to maintaining NIMs at 9%.
Interest rate charged by the company hovers in the range of 12-22% with the average lending rate at 18%. The lower interest rate is charged for teaser loans, where the LTV is substantially lower.The company is waiting for home loan finance license from RBI and NHB.The spike in NPAs in Q2FY2016 was mainly on account of slowdown of gold auctions due to festival season in Kerala.
The company intends to switch to 150 days overdues NPA recognition norms by end March 2016 in line with the guidelines, while plans to switch to 90 days overdues NPA recognition norms ahead of regulatory deadline of March 2018.
As per the company, at 90 days overdues basis, GNPAs would be higher by Rs 1000 crore at Rs 1634 crore at end September 2015, against exiting GNPA of Rs 634 crore at 180 days overdues basis.
The company has been changing its collection mechanism to have lesser impact of change in NPA recognition norms to 90 days overdues basis.
The company expects cost-to-income ratio to remain stable, as it do not plans to aggressively expand branch network for next two-three quarters.
Long term RoA is targeted at 3%.The broad of the company has declared the dividend of Rs 4 per share.The board has also approved the 100% acquisition of Muthoot Insurance Brokers for valuation of Rs 20 crore, subject to regulatory approvals. Muthoot Insurance Brokers has license to sell life and health insurance products.
The company expects its Sri Lankan subsidiary to declare small dividend by end 2015.

The company has posted healthy 21% growth in the net profit to Rs 186.6 crore in Q3FY2016, driven by decline in operating expenses and stable asset quality.
The company has maintained the NIMs at 9.04% in Q3FY2016, supported by decline in cost of funds to 10.34% from 10.49%. The company targets to maintain NIMs at 9%.
The loan book of the company increased 13% to Rs 24990.7 crore at end December 2015. The company expects loan growth of 10% for FY2016 as well as FY2017. An improvement in economic growth can help to post loan growth above 10%.
The number of gold loan accounts has further increased to 69 lakh at end December 2015 from 59 lakh at end December 2014.
The company has completed thirteenth issuance of debenture of Rs 500 crore (Rs 250 crore+ oversubscription of Rs 250 crore) at lower interest by 25 bps in Q3FY2016. The interest rate on fresh fund raising is consistently declining.
The average gold loan per branch has increased to Rs 5.86 crore from Rs 5.17 crore a year ago.
The gold holding of the company has increased to 145 tonnes at end December 2015 123 tonnes a year ago.
The loan ticket size and employee count of the company was stable.
The company expects to add 100-200 branches in FY2017.
The company is waiting for home loan finance license from RBI and NHB. The board of the company has approved capital infusion of Rs 50 crore into home finance entity.
The company would switch its NPA recognition norms to 150 days overdues basis by end March 2016 in line with the guidelines. The company expects to maintain the GNPA ratio stable, even after switching to lower NPA recognition bucket of 150 days at end March 2016 with enhance collection efforts.
The subsidiary of the company, Asia Asset Finance in Sri Lanka is doing well, which has posted strong 36% growth in its assets. After gold loans, the subsidiary has also entered into microfinance business. The company is upbeat about the performance outlook of Sri Lanka subsidiary.

Muthoot Finance have doubled in a short term, even at current level I think it is still quoting at quite a discount to its peers. The company is slowly trying to diversify in other lending business besides gold and have also recently acquired a small company where it is trying to increase stake.

Income Tax department has conducted raids in the premises of Kerala-based financial institutions under the Muthoot banner, across the country. The raid is being conducted across the three major independent business entities, Muthoot Finance, Muthoot

Muthoot Finance Q4 profit rises 40%
Gold loan NBFC Muthoot Finance on Wednesday announced a 40.28% year-on-year increase in standalone net profit for the three months ending March to Rs 451.38 crore. The board of directors of Muthoot Finance Limited also decided to raise funds up to Rs 6,000 crore through public issues of redeemable non-convertible debentures to be issued in one or more tranches. For the complete fiscal, the NBFC registered an increase in net profit of 46% at Rs 1,720 crore for FY18 as against Rs 1,180 crore in the previous year.

no, because of rise in NPA.
“As regards Muthoot Finance, though primary NPA portfolio declined on account of secondary NPA which is nothing but standard loans of a borrower whose any other loan account is a primary NPA, overall NPA has increased. Further, a higher primary NPA is mainly on account of more time given to customers for repayment on our shorter tenor loans of 6 months which became NPA faster than our conventional loan tenor of 12 months. The company is currently maintaining increased standard asset provision of 1.25% higher than the regulatory requirement of 0.40%.”

possibly because Market like Growth and Muthoot not able to grow their core gold loan business much , it has grown in 5-7% during last 2-3 years.
so unless it comes back on growth path stock price may remain subdued.
management has said they expecting gold loan business growth to be around 15% during FY19 when people asked how they will be able to grow it faster compared to last 3 year growth rate , their response was that due to branding / Marketing etc activity can give impetus to it . that’s it.
so it seems market is in wait and watch mode.
may be it will move only after Q1 results if they managed to show gold loan business growth of 10-15 percent with positive management commentary on the gold loan business growth front.